Moody’s Investors Service on Monday cut the rating of Tata Steel Ltd, the world’s sixth largest steel manufacturer by one notch to Ba3 from Ba2, citing a weak outlook for the steel industry.
?The rating action reflects the anticipated weakening of Tata Steel’s consolidated financial profile over the intermediate term, driven by the weakness in the steel markets, and the significant operating challenges faced by the company’s European operations,? said Ivan Palacios, a Moody’s AVP/Analyst.
Tata Steel shares on Monday slipped 10.21% to close at Rs 416.55 on the Bombay Stock Exchange. Moody’s has a stable outlook on Tata Steel.
?Following the renegotiation of the covenants and contribution of additional funding to Tata Steel UK, Tata Steel’s position is likely to have stabilised in the near term, with an expectation of progressive improvement in Tata Steel’s consolidated financial profile beyond year-end March 2010,? the rating agency said.
The rating agency said the deterioration in operating performance had been greater at the company’s Tata Steel UK operations, which it brought from Anglo-Dutch Corus, in 2007.
According to Moody?s, because of Tata Steel UK’s expected material decline in profitability, it has had to negotiate the reset of the covenants under its GBP 3.7 billion senior debt facility. As part of the reset process, Tata Steel agreed to inject GBP425 million of equity and subordinated loans into Tata Steel UK in a phased manner, of which GBP200 million will be used to pay off debt and deleverage the balance sheet of the European subsidiary.